Borrowing to invest in rental property
Whether you are an experienced property landlord, or a first time investor, when borrowing to invest in a rental property it is important to ensure you have a clear understanding of the process and your knowledge is up-to-date.
The buy-to-let market is complex. There are many different mortgages to choose from. The whole point of buying-to-let is for its investment potential – both capital growth on the value of the property and the
income it generates in rent.
When choosing a property to let, your main considerations are different to those you might apply when choosing a house in which to live. For example, you might not choose to live in an area heavily
populated by students, but when looking for rental potential that same area may be exactly what you’re looking for.
Choosing the right property with the right rental yields is important. This is true not just for your income but also because you want the rent to more than cover the cost of your buy-to-let mortgage.
Finding the right mortgage
The buy-to-let mortgage market is a specialised one. In April 2014 the mortgage industry implemented the changes that came from the Financial Conduct Authority’s (FCA) Mortgage Market Review (MMR). The MMR changed the face of mortgage lending, forcing lenders to pay much more attention to affordability and expenditure rather than simply assessing gross rental income.
Lenders view buy-to-let mortgages as higher risk than residential mortgages because they know that many landlords rely on rental income to make the mortgage repayments and if the property is vacant for a period there is no income. Because of this perceived risk, interest rates tend to be higher than residential mortgages. The lender will also demand a larger deposit.
Typically in the current market you will struggle to borrow more than 75% of the property value, and any lender will look for rental income that covers around 125% of the mortgage repayments. A lender will expect you to prove the rental income potential too.
As specialist mortgage advisors in the buy-to-let market we are well placed to answer your questions. We will help you with the tricky process of not only getting a mortgage, but getting the right mortgage.
Your financial situation is unique, so we work hard to understand your goals and aspirations, and make financial recommendations based on a comprehensive and detailed analysis of your needs.
Your home may be repossessed if you do not keep up repayments on your mortgage